It is not uncommon for large businesses to pay their small business suppliers on long or late payment terms (i.e. more than 30 days after the supply). These long payment terms can significantly affect the cashflow and economic well-being of small businesses, particularly in the current environment.
In order to help improve payment times from large to small businesses, the Payment Times Reporting Scheme (Scheme) commenced on 1 January 2021, imposing new reporting obligations on certain organisations.
With the first reports under the Scheme due on 30 September 2021, in this article we explain what the Scheme is, whether the reporting requirements under the Scheme apply to charities and not-for-profits, what the reporting obligations entail and how the Scheme can benefit your organisation even if you aren’t required to report.
What is the Scheme?
Under the scheme, large organisations (which are generally those with an annual income of more than $100 million) are required to report on their payment terms and practices with small businesses with a view to:
- increase transparency around large business’ payment performance;
- help small businesses decide who to do business with;
- create incentives for improved payment times and practices; and
- help the public make decisions about the large businesses they buy from.
Do the obligations under the Scheme apply to charities and not-for-profits?
Organisations registered as charities with the Australian Charities and Not-for-profits Commission (ACNC) are exempt from reporting under the Scheme. However, they may do so if desired.
In contrast, not-for-profit organisations that are not registered as charities with the ACNC are not exempt from the reporting obligations. These entities will generally need to report under the Scheme if they carry on enterprise in Australia and have a total annual income of more than $100 million.
Whilst this will, admittedly, mean many not-for-profits are not covered by the scheme based on annual income alone, it is important for larger not-for-profit organisations to be aware of their obligations.
More information on who needs to report under the Scheme can be found on the Australian Government’s website.
What are the reporting obligations?
The reporting obligations under the Scheme include requirements for organisations to report on, amongst other things:
- their standard payment periods for suppliers that are small businesses;
- the proportion of their procurement from small business; and
- details of their use of supply chain finance to small businesses.
The Australian Government’s Small Business Identification tool can be used to help identify which suppliers qualify as ‘small businesses’.
Entities required to report under the Scheme must report twice a year, with the first reports due on 30 September 2021 for entities with a 30 June end of financial year. Significant financial penalties may apply for failing to report or producing false or misleading reports.
Can the Scheme help your organisation even if it doesn’t have to report?
The Payment Times Reporting Regulator will maintain a public register containing information on each reporting entity’s payment practices with small businesses. If your organisation is not a reporting entity, the register can help you decide which large businesses you may want to engage with by considering the fairness of their payment practices.